Market comment 2022

[admin]

The property sector in the Chinese economy has always been something of a puzzle. At its peak, it accounted for a quarter of the nation’s economic output, broadly measured. And it sees people in Beijing and Shanghai paying house prices similar to those in San Francisco and New York, despite having just a quarter the income of American buyers. Now many believe that we are about to see a violent contraction of the property market in China. The government wants to intervene to curb speculation, and rein in what it calls the “three high” problem: high prices, high debt and high financialisation. The approach has been nothing short of dramatic. Financing for property developers has tanked. Earlier this year, property sales declined by as much as 20-30%, in-progress developments are not being completed and people have taken to the streets, banding together to stop mortgage payments on such projects in protest.

Many of China’s largest property developers are failing to repay their debts. Even the survivors are cash-strapped and in a liquidity crisis. The risk is that the property market crisis will drag the broader economy down with it, hitting suppliers, small- and medium-sized companies in construction, as well as household consumption. And dangerously, the banking system has at least a quarter of its assets in property. What is currently needed is a backstop to the self-fulfilling crisis: the belief that property developers will be insolvent impels buyers to hold off their purchases and financing to dry up. Some monetary easing and relaxation in the mortgage market is not enough: stimulating demand by loosening mortgage lending won’t solve the problem and a proposed bailout package will probably not move the needle. The government would need to offer much more relief to property developers, despite their past unscrupulous behaviour. To break the cycle, the government will need to send a much stronger message and instil confidence.

China’s property market is in freefall. What does this mean for the world economy? | Keyu Jin | The Guardian

• Property sales already down 40% this year, confidence is gone, policy reversal unlikely as it would admit the crackdown was a mistake
  
• Add the unprecedented heatwave and the disasterous Covid lockdowns and the likelihood of a decline in exports as the world economy absorbs the impact of rapid tightening of US monetary policy and high inflation and worsening US-Chinese relations and a Chinese recession becomes a real possibility.
  
• China needs to re-rig its economic model away from the tired old credit/investment model towards consumer demand but "such policies are politically difficult because they threaten the established order of powerful party cadres, centralised state-owned enterprises and local government panjandrums."
  
• Unstable future: increasingly dramatic effects of climate change, US political instability, high inflation, Ukraine war, food and energy crisis and climate change hitting poor countries stimulating immigration, etc.
  

[admin]

• SMSI insider buys (Aug/22)
  
• UPH Benchmark $3 target, a 500% upside
  

[admin]

“With secularly higher interest rates, investors will no longer be able rely on the continuous rerating of all other asset classes, especially long-duration equities such as U.S. tech stocks. The 2020s will demand a more discerning approach to asset allocation,” he says. The beneficiaries will be companies with tangible assets — the real economy, so to speak. In a high-pressure economy, there’s a scarcity premium on physical assets, uncertainty about future returns and less benefit to financial engineering, he says. In an era of deglobalization, intangible assets will lose their allure. “Investors should seek exposure to ‘tangibles’, such as commodities, real estate and many traditional ‘value’ parts of the equity market, which are likely to gain from this transition,” Perkins says. Theme Winners 

• Higher interest rates Banks, financials, healthcare 
  
• Infrastructure spending Industrials, materials, commodities 
  
• Structural energy shortages Energy, commodities 
  
• Defense spending Defense, aerospace, materials 
  
• Global housing revival Banks, materials, commodities 
  
• Deglobalization and reshoring Industrials, capital goods 
  
• Climate change Commodities, metals, energy
  

There's a new supercycle emerging for the economy, and these are the stocks that would benefit, strategist says

[admin]

• And even more insider buys at SMSI
  

[admin]

But just as it has become impossible for President Xi Jinping to U-turn on the mass lockdowns that have stunted economic activity, it also appears increasingly unlikely that he and his politburo will reverse the crackdown on reckless lending in the property market that has led to a 40% fall in the sale of homes this year. The Chinese housing market has driven growth for the past two decades and now represents the biggest asset class in the world, with a notional value of between $55tn (£47tn) and $60tn, which is bigger than the total capitalisation of the US stock market. Now developers are going bust after being deprived of easy credit, prices are falling, homeowners are refusing to pay mortgages on unfinished homes and the slump in properties being sold and construction is crippling local governments that rely on land sales for income.

Point of no return: crunch time as China tries to fend off property crash

[admin]

Enovix (NASDAQ:ENVX) +18.10%. The Fremont, Calif.-based lithium-ion battery maker was back as the top gainer after two weeks, shrugging off the loser tag from last week. The week saw Loop Capital doubled its price target on the company to $100 from $50 while keeping a Buy rating on the shares; and Cowen setting a new price target to $36 from $19 and maintaining an Outperform rating. Loop analyst Analyst Ananda Baruah sees growth potential and said that Enovix is entering production and have access to seemingly "unlimited" demand. Meanwhile Cowen analysts noted that ENVX shares have been rising higher after its earnings wherein Enovix said its Automotive opportunity looms large as the company was just getting started with early promising fast charge data and improved volumetric energy density and safety via BreakFlow.

The average Wall Street Analysts' Rating on ENVX is Strong Buy, wherein 5 out of 6 analysts tag the stock as a Strong Buy. The rating is in contrast to the SA Quant Rating of Hold, which takes into account factors such as Valuation and Profitability, among others things. YTD, the stock has declined -17.49%.

Enovix swaps loser tag for top industrial gainer, while shipping stocks see choppy waters | Seeking Alpha

Loop Capital analyst Ananda Baruah raised the firm's price target on Enovix (ENVX) to $100 from $50 and keeps a Buy rating on the shares. The analyst notes that the company's expected battery partnerships with Apple (AAPL), Meta Platforms (META), Samsung (SSNLF), Tesla (TSLA) and the U.S. Army will be its "competitive moat". Baruah further contends that these customers are increasingly understanding that they have to partner with Enovix as it offers the best technology with "unlimited demand".

Breaking News: ENVX latest news. - The Fly

[admin]

Around 16 million working-age Americans (those aged 18 to 65) have long Covid today.  Of those, 2 to 4 million are out of work due to long Covid.  The annual cost of those lost wages alone is around $170 billion a year (and potentially as high as $230 billion)... Using the Minneapolis Fed, TUC, and Lancet data on extent of work reductions gives us 2 million, 3 million, and 4 million full-time equivalent workers out of the labor force due to long Covid, respectively. The midpoint of this range—3 million full-time equivalent workers—is 1.8% of the entire U.S. civilian labor force.[5]  

 New data shows long Covid is keeping as many as 4 million people out of work

• At midpoint, a third of the labor shortage (vacancies) are the result of long Covid..
  

[admin]

One U.K.-based fund manager is concerned that the Federal Reserve’s quantitative tightening would drain liquidity from the market—just as higher rates and falling stock and bond prices boost the need for cash.

The Other Doomsday Scenario Looming Over Markets - WSJ

[admin]

Wang argued that MATANA — Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), Alphabet (GOOG, GOOGL), Nvidia (NVDA), and Amazon (AMZN) – is an upgrade to FAANG by dropping Meta (META) and Netflix (NFLX) while adding Microsoft, Tesla, and Nvidia.

MATANA is the new FAANG, analyst says

Another is that Mr Buffett, who supported Ms Hollub’s bid for Anadarko by providing $10bn of high-yielding investment, has come to appreciate her idiosyncratic approach to America’s oil business. For what it’s worth, Schumpeter, who first met Ms Hollub six years ago, has long considered her a cut above the average American oil-industry boss. An engineer by training, back then she went into detail explaining how Oxy increased the yield of old oil wells by pumping in carbon dioxide to dislodge the residual crude, which she said lowered the costs, as well as the carbon footprint, of each barrel. Today, she doubles down on that, saying that Oxy is on the verge of building a carbon-management business that could reach the size of its oil-and-gas one by 2050—which she says could make it the “last company standing” in America’s oil industry. As she puts it: “Oxy is what an oil and gas company of the future has to look like.” What she means is that, in addition to pumping more oil and gas, Oxy is betting on carbon-sequestration technologies to lower its net carbon footprint.

Could the demonised oil industry become a force for decarbonisation?

[admin]

Federal Reserve policy makers are about to surprise themselves — and not in a good way when it comes to stocks and other assets perceived as risky, according to analysts at BlackRock Investment Institute. BlackRock has argued that investors are dealing with a “regime shift” as the COVID-19 pandemic upended an unusual period of mild volatility in output and inflation, heralding a more volatile market environment that carries echoes of the early 1980s. 

That’s an environment in which record debt levels mean small changes in interest rates will have an outsize impact on governments, households and companies, the research arm of the world’s largest asset manager has argued. “Central bankers at the recent Jackson Hole forum started to recognize this reality. But we think they’re not prioritizing economic implications over pressure to curb inflation,” the analysts said in a Tuesday note, referring to the late August monetary policy symposium held in Jackson Hole, Wyoming.

Bad news for stocks: Fed will be surprised how hard rate hikes hit economy, says BlackRock